General Electric Is Ending Annual Performance Reviews

3/4/2017 GeneralElectricisendingannualperformancereviewsQuartz
IT'S A MILLENNIAL THING
Why GE had to kill its annual

performance reviews after
more than three decades
Max Nisen August 13, 2015
Hallowed but shifting ground at GE's Crotonville management training campus (General Electric)
The annual performance review has been a ubiquitous and generally loathed
xture of the corporate world for decades. But haters can rejoice: Its nally
What Snaps IPO means, voter manipulation, dog leasing. All this and more in today's Daily
https://qz.com/428813/geperformancereviewstrategyshift/ 1/10
starting to topple. The best part? Even the company that popularized the toughest
Brief.
form of formal annual review is moving away from them.
For decades, General Electric practiced (and proselytized) a rigid system,

championed by then-CEO Jack Welch, of ranking employees. Formally known as
the vitality curve but frequently called rank and yank, the system hinged on the
annual performance review, and boiled the employees performance down to a
number on which they were judged and ranked against peers. A bottom percentage
(10% in GEs case) of underperformers were then red.
The company got rid of formal, forced ranking around 10 years ago. But now, GEs
in the middle of a far bigger shift. Its abandoning formal annual reviews and its
legacy performance management system for its 300,000-strong workforce over the
next couple of years, instead opting for a less regimented system of more frequent
feedback via an app. For some employees, in smaller experimental groups, there
wont be any numerical rankings whatsoever.
With the decision, GE joins other high-pro le companieslike Microsoft,

Accenture, and Adobethat have started dumping or have already gotten rid of
formal annual reviews. GE may not have invented stack ranking, but its the
company most identi ed with it. And given the longstanding and pervasive
in uence GE has had over the business world, its move could represent the
beginning of the end for a practice that has been at the heart of how corporations
have managed people for many decades.
It existed in more or less the same form since I started at the company in 1979,
GEs head of human resources, Susan Peters, tells Quartz. But we think over many
years it had become more a ritual than moving the company upwards and
forwards.
A century old icon, shifting rapidly

There are few companies in America that have General Electrics legacy. Founded
Brief.
by none other than the great inventor Thomas Edison, its well into its second
century of existence. Its move to dump the annual review for large swathes of its
workforce underscores a sweeping shift underway at the blue-chip conglomerate.
Its selling off billion-dollar pieces of the lucrative nancing business that
imperiled it during the 2008 crisis and led to a too big to fail designation. Its
fundamentally restructuring to refocus on its increasingly high tech and industrial
businesses, emphasizing things like power and water infrastructure, advanced jet
turbines and imaging equipment. By the end of the transition, industrial
businesses will provide over 90% of earnings (PDF), and the only lending the
company will do will be to customers buying industrial machinery.
Its made broad changes in its management style too, under current CEO Jeff
Immelt. They mark an emphatic break from the hard-charging style Welch
embodied as CEO from 1981 to 2001. Welchs intense and widely imitated approach
made sense for the GE of yesteryear. It was a bloated industrial conglomerate that
was facing extraordinary competition from Asian manufacturers. In 1994near the
mid-point of Welchs tenurenearly 60% of GE sales came from a vast number of
industrial businesses that were becoming increasingly commoditized. That
economic reality led to obsessions with cost, ef ciency, and operational excellence,
which were embodied in Welchs management style.
Welchs rapid cost cutting and wholesale reorganization of the company led to the
nickname Neutron Jack. The companys value increased by more than $300
billion during his reign, making it the worlds largest at one point. Fortune
Magazine dubbed him the manager of the century in 1999. Along with its rank
and yank policy, GE also subscribed to Six Sigma, a manufacturing quality protocol
that worked to ruthlessly boost quality control and eliminate mistakes. Welch was
a believer in confrontation, in brutal candor, in argument, and in pushing people
extremely hard. In a lot of ways, he ran the company by sheer force of will and
personality.
Welchs
Brief. approach to management made him a legend at GE and American business
schools. Parts of his legacy remain at GE, particularly his insistence that managers
be given ownership of their businesses. But his style and focus on the annual
performance review simply doesnt work for the company or its younger workforce
any more, say GE human resources executives.
The world isnt really on an annual cycle anymore for anything. Peters told
Quartz. I think some of it to be really honest is millennial based. Its the way
millennials are used to working and getting feedback, which is more frequent,
faster, mobile-enabled, so there were multiple drivers that said its time to make
this big change.
Shes not the only one who thinks so. Theres a growing realization that the annual
review just isnt a particularly good way to manage people or to boost performance.
It leads to a tendency for HR to focus excessively on process over outcomes.
When you think of the leadership association people have with Jack Welch and
the ranking and rating, it suited a certain time, it does not suit today and todays
worker in my opinion, Adobe HR head Donna Morris, who led that companys
transition away from annual reviews and ratings, told Quartz. Its a process that
looks in the rear view mirror, thats focused on what youve done a year ago. That
just isnt current with how I think were working and how many of the employees
that were looking to attract or grow have been raised.
Welch doesnt comment on current GE practices. But as recently as 2013, he

defended the bell curve in The Wall Street Journal (paywall). He argues that rank
and yank is a pejorative term, and prefers to call it differentiation. But he argues
forcefully that candid appraisal of employees is essential, that they need to know
exactly where they stand in an organization, and that with constant
communication and feedback, it isnt as harsh as people make it out to be.
Yes, I realize that some believe the bell-curve aspect of differentiation is cruel,'
Brief.
Welch wrote. That always strikes me as odd. We grade children in school, often as
young as 9 or 10, and no one calls that cruel. But somehow adults cant take it?
Explain that one to me.
Of course, that discounts the often highly negative experiences of employees of

some companies that took up the practice.
From The Pit to mindfulness training
The changes are palpable at GEs legendary Crotonville management training

center, the leafy campus in upstate New York where the company has sent up-and-
coming executives since 1956. The heart of Crotonville was always the Pit, the
largest of several imposing lecture halls where Welch used to deliver his
passionate, hours-long speeches, during which he expected managers to challenge
him, only to push them right back. The company recently cut an enormous window
into the formerly nearly subterranean Pit. Its trying to make the place more
modern, friendly, welcoming, and open.
The campus is also getting new buildings. One includes a studio where executives
are taught suminagashi, the Japanese art of painting on water. Theres a new two-
sided kitchen, built in a renovated carriage house, that was used to hold cooking
competitions until a tendency towards overcompetetiveness led to some
modi cations. A once clubby English-style pub at the center of campus in a
converted farmhouse called The White House is now an airy cafe and meeting
space serving craft coffee. Instead of drills on Six Sigma, executives can now take
courses on mindfulness. A string quartet and improv sessions are used to prompt
discussion about teamwork.
Its just about the opposite of what youd expect if you went by one of Welchs
bestsellers
Whator NBCIPO
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means,30 Rocks
voter parody dog
manipulation, of the place,
leasing. which
All this characterized
and more two
in today's Dailyof
the core Six Sigma values of the company as brutality and hand-shake-fulness.
Brief.
Raghu Krishnamoorthy, the longtime GE exec in charge of Crotonville, sees the

programs he runs there as essential to helping transition the company from
management by process and rigid bell curve to management enabled by mobile
phones for a new generation of employees who have different expectations. The
last generation of workers expected and were often motivated by competition.
Thats not really the case any more, he says.
Command and control is what Jack was famous for. Now its about connection and
inspiration, Krishnamoorthy recently told a group of HR executives at a
conference at the campus. In fact, were repurposing the mission of Crotonville as
a place where we inspire connection and develop people.
Management via app
The new app is called PD@GE for performance development at GE by the

admittedly acronym-happy company, and was built by a team from its large and
growing group of software engineers in Silicon Valleys San Ramon. The HR group
has been one of the rst to adopt it, including the experiment with no numerical
ratings.
Each employee has a series of near-term goals, or priorities. Managers are

expected to have frequent discussions, called touchpoints, on progress toward
those goals and note what was discussed, committed to, and resolved. The app can
provide summaries on command, through typed notes, photographs of a notepad,
or even voice recordings. The focus isnt on grading how well people are doing, but
on constant improvement.
Employees can give or request feedback at any point through a feature called
insights, which isnt limited to their immediate manager, or even their division.
Normally, you never get that feedback unless you manage to track someone down
the next day, which people rarely do, and only from a direct manager. If you wait
Brief.
for an annual review, any speci cs are probably long forgotten.
This allows me to ensure that Im in a position to change tomorrrow ,

Krishnamoorthy says, pointing at the app. But this is just the tool. The most
important thing is the conversation. [The app] makes it incumbent on me to be a
coach.
Theres an emphasis on coaching throughout, and the tone is unrelentingly

positive. The app forces users to categorize feedback in one of two forms: To
continue doing something, or to consider changing something.
Weve found that that terminology has been extremely helpful, Peters says. You
know that humans dont really like to give negative feedback, its just not
something that anybody does well, I think its just not in human nature. So if you
want the person thats working for you to improve, you have to think about it in
true coaching terms.
Managers will still have an annual summary conversation with employees around
December where they look back at the year and set goals, but its far less
consequential and fraught than the formal review the company is replacing. Its
not meant to be all that different from the conversations expected to occur
throughout the year, and entirely unlike the sort of formal review that sets
decisions on things like pay or advancement.
The rollout is going to be slow. There are about 25,000 to 30,000 people using the
new system now, and Peters estimates there will be 80,000 on board by the end of
this year. The rest will transition by the end of 2016.
The shift in how GE employees think about and track their performance mirrors
the broader transition underway at the company to substantially simplify its
business. FastWorks is a successor in many ways to Six Sigma and consciously
mimics the way that companies in Silicon Valley work. Theres a focus on rapid and
Brief.
frequent experimentation, learning from the market, only funding projects that
prove themselves, and acceptance and willingness to move on from failures.
It is a really important element of what were trying to do, which is to make a

major shift of the companys culture towards simpli cation, towards better, faster
outcomes for customers, Peters says.
A long time coming
The move by more and larger companies away from annual reviews and ratings is
well past due, say management theorists. Years of research, from both business
school professors and neuroscientists, has found that the practice is ineffective at
boosting performance, actively alienates employees, is based on a awed
understanding of human motivation, and is often arbitrary and biased. People
simply dont t neatly (pdf) on a bell curve. It ends up being an exercise in
paperwork and bureaucracy instead of an agent of change.
When you look at the evidence about stack ranking. The kind of stuff that they
were doing, which was essentially creating a bigger distribution between the haves
and the have nots in their workforce, then ring 10% of them, it just amazed me,
Bob Sutton, a professor at Stanfords Graduate School of Business told Quartz. We
looked at every peer reviewed study we could nd, and in every one when there was
a bigger difference between the pay at of the people at the bottom and the top
there was worse performance.
As much as researchers and many employees might applaud the decision, it

doesnt mean its going to be easy. Theres a reason reviews have stuck around for
so long, and its hard to overemphasize how entrenched the annual review has
become. Its the way most were raised as employees, a huge part of their workload,
and a comfortable framework to administer and to defend pay, promotion, and
ring decisions. Adobes Morris says that one of her biggest obstacles was actually
Brief.
convincing her own people that this could work.
Even if companies claim loudly that theyve done away with annual reviews and
rankings, there are often shadow rankings, where companies still do effectively
the same thing, but more informally, in the background. Meanwhile, HR executives
get particularly nervous about the pay piece, about how they can pay for
performance in the absence of a formal performance measurement system.
If you get rid of the performance ratings, how are you going to get rid of a fair and
equitable and measurable system to blame the distribution of pay on? Paul
Rubinstein, a partner in Aon Hewitts talent strategy consultancy asks, rhetorically.
Because why did performance ratings come into existence? So theres some
mechanism to force pay decisions. People wonder, which came rst the rating or
the pay decision.
Support and training on how to make pay decisions without rankings has taken a
lot of investment at Adobe, Morris says. Even within GE, theres still a sense of
con ict, which might help explain why the company seems hesitant to fully
commit to removing numerical rankings.
One thing we do know is that we will maintain our culture of meritocracy and
differentiation, Peters says. So we have to make sure what ever other aspects or
factors come into play, to make sure you still have that. Were trying to gure this
out and keep some of the fundamentals of the culture and also move to a place
where its more contemporary. I dont know what the answer on thats going to be
yet.
In early pilots, the company saw no difference in pay differentiation when

managers didnt use ratings. But it has a lot of people to convince of that, so
different pilot groups will continue doing different things until theres more
data.IPO means, voter manipulation, dog leasing. All this and more in today's Daily
What Snaps
longitudinal
TheBrief.
harshest critics of performance reviews and ratings argue that numerical
rankings and pay differentiation are perhaps the most damaging parts of the
system, and that any regime that preserves them cant hope to truly change. And
many companies like the idea of getting rid of reviews and rankings, but struggle to
follow through.
If GE has one thing going for it, its a uniquely deep bench of management talent,
and a culture that emphasizes constant improvement and helping other people
succeed. That made stack ranking less harmful at GE than it was at other
companies, according to Bob Sutton, and it might help it overcome the rockier
parts of the transition.
Although Jack believed in it like a religion, I think that they gured out [stack
ranking] was something that didnt work, that was faith based, Sutton says. One
thing I will give them credit for, going back to Jack and continuing to today, is that
theyve clearly de ned a star employee as someone who does great work and who
helps others succeed as well.

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3/4/2017 GeneralElectricisendingannualperformancereviewsQuartz

IT'S A MILLENNIAL THING

Why GE had to kill its annual

For decades, General Electric practiced (and proselytized) a rigid system,

With the decision, GE joins other high-pro le companieslike Microsoft,

A century old icon, shifting rapidly

Welch doesnt comment on current GE practices. But as recently as 2013, he

Of course, that discounts the often highly negative experiences of employees of

From The Pit to mindfulness training

The changes are palpable at GEs legendary Crotonville management training

Raghu Krishnamoorthy, the longtime GE exec in charge of Crotonville, sees the

Management via app

The new app is called PD@GE for performance development at GE by the

Each employee has a series of near-term goals, or priorities. Managers are

This allows me to ensure that Im in a position to change tomorrrow ,

Theres an emphasis on coaching throughout, and the tone is unrelentingly

It is a really important element of what were trying to do, which is to make a

A long time coming

As much as researchers and many employees might applaud the decision, it

In early pilots, the company saw no difference in pay differentiation when

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